Should HHS Negotiate Prescription Drug Prices?

Senate health committee hears differing opinions

WASHINGTON -- Experts shared their sometimes conflicting ideas for making prescription drugs more affordable during a hearing of the Senate Health, Education, Labor and Pensions (HELP) Committee Tuesday.

In his opening statement, HELP Chairman Lamar Alexander (R-Tenn.) described the variables that impact the cost of prescription drugs, such as a patient's choice of insurance plan, the availability of generic substitutes, and the net price following rebates and negotiations.

Much of the discussion centered on a recent report from the National Academies of Sciences, Engineering, and Medicine (NASEM) that called for the U.S. Department of Health and Human Services (HHS) to negotiate drug prices -- a policy idea long-supported by many Democrats and some Republicans -- and suggested the agency allow "selective exclusion" of certain drugs from formularies when less costly drugs could provide "similar clinical benefit."

But a former director of the Congressional Budget Office (CBO) argued that price negotiation would not work without allowing the government to limit formularies, which could spell disaster.

With such a complex system, it's important for Washington lawmakers to hear "concrete recommendations" from "independent and knowledgeable"experts like those present at the hearing, Alexander stated.

NASEM Solutions

Price negotiation works in almost every sector of the U.S. economy, but in the biopharmaceutical world there's an "imbalance of strength" between drug manufacturers and payers, argued Norman Augustine, chair of the NASEM committee that authored the report.

"And the reason is the representative of the patient doesn't have the choice to walk away from the table ... All the strength is really on the seller side. And the buyer... finds himself or herself in a position where [the seller] has something that's absolutely essential and they can't walk away," he explained.

Other NASEM recommendations from the report include:

Prevent manufacturers from paying manufacturers of generics or biosimilars to stay out of the market (i.e., "pay for delay")

Prevent "evergreening" or the continuation of drug patent exclusivity for drugs for inappropriate reasons

Improve the strategies for determining the value of drugs and apply those findings to formulary design

Place limits on Medicare patients annual cost-sharing under Medicare Part D plans

Improve oversight of the 340B drug program to ensure the program's use is "consistent with its original intent"

The report also called for increasing transparency of drug prices, and urged HHS to "curate, analyze, and publicly report" data collected on drug prices each quarter. The Federal Trade Commission (FTC) should inspect and then respond to any anti-competitive practice it finds, the committee suggested.

At the hearing and in his written statement, Augustine acknowledged that two of 17 NASEM committee members -- Michael Rosenblatt, MD, a former executive vice president and chief medical officer at Merck, and the late Henri Termeer, longtime head of Genzyme who died in May -- had filed dissenting views.

Their primary concern was that "many recommendations and implementing actions that we offered would be too stressful to the process of producing pharmaceuticals in this country... [and] would impact the industry such that it would have difficulty providing new drugs for future patients," Augustine said.

A Different Viewpoint

Douglas Holtz-Eakin, PhD, president of the American Action Forum, a conservative think tank, and a former CBO director took issue with the idea of HHS negotiating drug prices.

Price negotiation would not work without allowing the government to limit formularies, which would spell disaster, Holtz-Eakin told MedPage Today after the hearing.

"Someone has to say 'yes' to one drug and 'no' to another. Who's going to make that decision? What criteria will they make those decisions by?" he stated.

Holtz-Eakin said that legitimate pressures, such as voters rejecting government decisions, and illegitimate pressures -- lobbying groups -- would emerge from a policy based on the NASEM report.

"I view it as opening a can of worms that cannot possibly be a good idea... If a private entity picks 'drug A' over 'drug B,' and people don't like it, they can go get their prescription drugs from another entity. If you put it as a monopoly of the federal government, they have no choice," he said.

In his opening testimony, Holtz-Eakin said that it's only "very specific markets that aren't working well," for example the specialty drugs market and single-source products.

He said these problems can be managed without blanket solutions like price negotiation, and by other government agencies. When a drug company "jacks up" the price of a product by 1,000% "that to me, is just abuse of monopoly power," he told MedPage Today. "We have an FTC and we have a justice department. I'm mystified by why we've seen no action on any of this."

Holtz-Eakin said a better option is value-based purchasing, and alternative payment models, such as payment bundles where the price of the drug is wrapped into the service.

Related Issues

Throughout the hearing, senators asked witnesses for advice on ways to stop pharma from "gaming" the system through "pay-for-delay" deals, and "evergreening" of patents, both of which postpone the entry of generics to the market. Sen. Maggie Hassan (D-N.H.) cited one case in which Allergan sold its drug right to a Native American tribe, to "exploit" sovereign immunity protection and avoid a patent challenge.

The committee also aired concerns about direct-to-consumer advertising.

"After about a month of watching their [prescription drug] ads, I figured dry eye was the biggest [condition] out there. It was ... on every news show every morning when I was watching TV," noted Sen. Johnny Isakson (R-Ga.), referring to the marketing campaign for Restasis (cyclosporine ophthalmic emulsion).

Isakson asked whether such ads help create a market for drugs that people might not need, and Augustine said direct-to-consumer advertising is an area of concern.

He pointed out that the price of advertising is calculated into the price of the drug, so ultimately borne by the patient. Also, advertising is often used to encourage patients to choose a brand-name product in a higher drug tier, and such ads can "create conflict" when a patient wants a drug that the doctor doesn't believe is better than a cheaper alternative.

However, banning direct-to-consumer advertising for prescription drugs could be seen as a violation of the drug makers' First Amendment rights, he noted.

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